Source · Select Committees · Public Accounts Committee
Recommendation 17
17
Accepted
HMRC's volume compliance approach for R&D tax relief raises concerns about discouraging investment.
Conclusion
Organisations representing accountants and tax professionals wrote to us with concerns about the impact of HMRC’s volume compliance approach on companies.60 50 Qq 33, 34 51 C&AG’s Report, paras 2.2, 2.4 52 Committee of Public Accounts, HMRC performance in 2021–22, 33rd Report of Session 2022–23, HC 686, 11 January 2023, para 22 53 C&AG’s Report, para 2.6, Figure 11 54 Q 56; C&AG’s Report, Figure 11 55 Q 57; C&AG’s Report, para 11 56 Q 59 57 C&AG’s Report, para 2.18 58 Qq 60–62 59 Q 58 60 HMRCSR0007 Institute of Chartered Accountants in England and Wales; HMRCSR0015 Chartered Institute of Taxation 14 HMRC performance in 2022–23 They felt HMRC compliance staff treated companies with suspicion and lack the necessary expertise and training to determine whether projects qualify as research and development for tax purposes. They raised concerns that HMRC’s approach was discouraging some firms from investing in research and development. HMRC told us it had needed to act in response to the high levels of error and fraud and does not accept its actions have discouraged research and development investment. It said that it needs to listen to feedback from its customers, and that the new information requirements it has introduced should allow HMRC to better target its compliance checks.61 It accepted that it does not have large numbers of engineering experts in-house but that these are typically not needed for its volume compliance work. It explained that for higher-level disputes it can bring in expertise externally or from other parts of government.62 The tax gap
Government Response Summary
The government agrees with the committee's observation and intends to implement measures by Summer 2024, including new electronic claim requirements to better risk assess R&D claims, increased compliance staff to over 500, a new Anti-Abuse Unit, and an R&D Disclosure Facility launching in Spring 2024.
Government Response
Accepted
HM Government
Accepted
5.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2024 5.2 HMRC seeks to recover research and development (R&D) tax relief where it was not claimed in accordance with the law. All claims go through a risk screening process; new requirements to submit claims electronically and provide additional information will enable HMRC to risk assess large volumes of claims in an automated way and target interventions on higher-risk claims. 5.3 HMRC opens enquiries within legislative time limits. In the majority of cases, adjustments for incorrect R&D claims will be limited to claims investigated within the normal time limit of 12 months from the date the claim is submitted. However, HMRC does consider raising assessments outside of this normal time limit where relevant legislative conditions are met, including where there is evidence of deliberate non-compliance. Where there is evidence of deliberate non-compliance HMRC can look back up to 20 years to address this. 5.4 HMRC has increased its resources addressing non-compliance in R&D. Currently over 500 people work on R&D compliance, compared with around 100 in 2020-21. HMRC has also created an Anti-Abuse Unit (AAU), undertaking compliance activity where there is suspected abuse of the relief. This sits alongside work done by HMRC’s Fraud Investigation Service, where HMRC suspects criminality. 5.5 In spring 2024, the HMRC R&D Disclosure Facility will go live on GOV.UK, enabling customers or agents to inform HMRC if they may have overclaimed, or claimed in error and are out of time to amend their tax return. This will give customers the opportunity to come forward and put things right themselves rather than awaiting HMRC intervention.